Core Inflation Data Keeps Fed on Hold
The Federal Reserve's preferred inflation gauge, the core Personal Consumption Expenditures (PCE) index, remained elevated in December 2024 at 2.8% year-over-year, maintaining the same level as in November. On a monthly basis, it increased by 0.2%, exceeding expectations.
This data aligns with Wall Street forecasts and supports the Fed's decision to keep interest rates unchanged this week. The central bank remains cautious, monitoring inflation and the potential impact of the Trump administration's policies.
Fed governor Michelle Bowman emphasized the need for further progress in lowering inflation before considering any changes. She acknowledged that the process might be "bumpy and uneven," with the upcoming Q1 inflation data providing key insights.
Analysts anticipate that the Fed has concluded its rate-cutting cycle for the year. Fed Chair Jerome Powell emphasized the need for significant progress in reducing inflation before considering further rate adjustments.
Bowman expressed concerns about the impact of easier financial conditions on inflation. She believes that low interest rates and high equity prices have not effectively restrained inflationary pressures.
Longer-term Treasury yields are also being closely monitored, as they reflect investors' concerns about the Fed maintaining higher rates for an extended period. Bowman emphasized the importance of clarity on the Trump administration's policies and their economic effects.
The Fed's gradual approach to rate adjustments allows for a clearer understanding of the policy implications and market reactions.